I’m not a big fan of most advisory industry studies that come out each year for many reasons, but I can sum up the majority of my issues this way: There are a lot of different kinds of “financial advisors” in America these days, and they all have very different business models.
All advisory business models share some similarities: the need for clients, service models, compensation and revenue models, clerical support, office space, technology, marketing, etc. Yet there is a wide range of control over how they address these needs, often solving them in very different ways—and making them very different businesses.
However, most of the studies that I see don’t seem to recognize or understand these differences, lumping advisors who are employees at large corporations with those from small independents, and firms that largely generate commissions with those that only charge AUM fees. In our experience, the most useful data for any one advisory firm is collected from a group of very similar firms.
Occasionally I come across an industry study that, despite having many of the usual flaws, manages to identify an issue that is pervasive throughout the spectrum of advisory firms (and probably most businesses in general). One such study is the “2015 Trends in Advisor Compensation and Benefits” survey recently published by the Financial Planning Association and Financial Advisor IQ. While I suspect that the folks at Financial Advisor IQ do understand the wide range of business models lumped together in their results, their collaboration with the FPA, with its open forum membership, necessitated a broad range of survey participants. The good news is that there are still some important nuggets for independent advisors in their data: notably, that most owner-advisors and team leaders don’t understand what makes employees satisfied or why employees quit their jobs.
When I read an advisor survey, the first thing I look at is exactly who was polled. This survey describes its participants as “694 respondents in a range of roles within the profession.” This raises a number of red flags. While it seems hard to come up with an accurate number, the best that I can tell is that there are somewhere around 400,000 “financial advisors” in the U.S., so a shade under 700 isn’t a large sampling.
When that total is watered down into a “range of roles,” we’re not talking about many people in each category. And it truly is a range of roles: 22% of respondents are in a CEO or president role; 44% are a senior financial advisor or financial planner; 18% are junior or associate financial advisors or planners; and 11% are in non-advisor management roles like CCO or manager of operations. As titles and functions are mixed, who actually does what isn’t clear (how many CEOs and presidents are really working advisors?). It seems as if 33% of participants may not be advisors at all, while the remaining 66% clearly are. About 82% are in “senior” positions of some sort, while 18% are not.
These advisors and executives own or work in nearly every kind of advisory firm you can think of: 33% are independent RIAs, 22% work in firms affiliated with a national, regional or independent broker-dealer; 12% work in an affiliate of a hybrid RIA/broker-dealer; 10% are employed by a national or regional wirehouse; 8% are with an insurance brokerage or agency with another 8% at a bank or credit union; and 8% work in some other kind of firm. Two-thirds of these firms or teams have five or fewer advisors, while 35% have six or more advisors. Consequently, I take generalizations based on the responses from folks across all these positions in various business models with a grain of salt.